BILL ANALYSIS Ó
AB 1812
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Date of Hearing: April 6, 2016
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 1812
(Wagner) - As Introduced February 8, 2016
SUBJECT: Public employees' retirement
SUMMARY: Caps the retirement benefit paid to new members of any
public retirement system to members of any public retirement
system first hired on or after January 1, 2017 at $100,000 for
members whose service is not included in Social Security and
$80,000 for new members whose service is included in Social
Security. Specifically, this bill:
1)Limits the annual benefit of public retirement system members
to either $80,000 for a pension based on Social
Security-covered employment or $100,000 for a pension based on
non-covered employment.
2)Requires each retirement system to adjust these amounts
annually for inflation using the Consumer Price Index for All
Urban Consumers.
3)Specifies that this cap applies to public employees who is
employed by a public agency for the first time and becomes a
member of a public retirement system on or after January 1,
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2017.
4)Exempts from the cap:
a) Former public employees employed before January 1, 2017,
who return to employment in the same public agency on or
after January 1, 2017.
b) State employees hired prior to January 1, 2017, who were
in the Alternate Retirement Plan during the first 24 months
of state employment.
c) Public employees on an approved leave of absence
employed prior to January 1, 2017, who return to active
employment on or after January 1, 2017.
EXISTING STATE LAW:
1)Creates comprehensive public employee pension reform through
enactment of Public Employees' Pension Reform Act of 2013
(PEPRA) (and related statutory changes) that apply to all
public employers (including public transit agencies) and
public pension plans on and after January 1, 2013, excluding
the University of California and charter cities and counties
that do not participate in a retirement system governed by
state statute.
2)Under PEPRA, changed the retirement benefit plans that may be
offered to new public employees, including:
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a) Establishing uniform retirement formulas, including a 2%
at age 62 formula for non-safety workers and three formulas
for safety employees - 2% at age 57; 2.5% at age 57; and,
2.7% at age 57.
b) Requiring a three-year final compensation period for
determining a pension;
c) Requiring employee member contributions equal to 50% of
the normal cost of the employee's benefit plan;
d) Capping the amount of compensation that can be used to
calculate a retirement benefit on for all new members of a
public retirement system (currently $117,020 for employees
who participate in Social Security or $140,424 for
employees who do not participate in Social Security). This
amount is adjusted annually based on changes in the
Consumer Price Index (CPI) for all Urban Consumers.
e) Restricting the pay items that may be included in
pensionable compensation.
f) Limiting the maximum salary taken into account for any
retirement plan to the federal limit established under
401(a)(17) of the Internal Revenue Code (IRC) and prohibit
an employer from seeking a federal exemption from the
limit.
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g) Prohibiting an employer from making contributions to any
public retirement plan on any amounts of compensation that
exceed the 401(a)(17) limit.
h) Prohibiting a public employer from offering a benefit
replacement plan for any member or survivor who is subject
to the federal limit on benefits established by IRC Section
415(b) for an employee first hired on and after January 1,
2013, or to any group of employees that was not offered a
benefits replacement plan prior to that date.
EXISTING FEDERAL LAW:
1)Section 401(a)(17) of the IRC limits the amount of annual
compensation that can be taken into account under qualified
retirement plans. The limit for the 2016 calendar year is
$265,000. The compensation limit is only applicable to
persons who first became members or participants in a
qualified retirement system on or after July 1, 1996. The
compensation limit does not limit the salary an employer can
pay an employee, but rather limits the amount of compensation
taken into account under the retirement plan.
2)Section 415 of the IRC limits the amount of retirement
benefits that may be paid to a participant in a defined
benefit plan. In 2016, the limit for members who retire at
age 65 is $210,000.
FISCAL EFFECT: Unknown.
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COMMENTS: According to the author, "As of 2014, 19,728 people
receive pension of at least $100,000 from the California Public
Employees Retirement System, which is a huge jump from the more
than 1,800 who reported were getting six-figure pensions in
2005. AB 1812 represents an opportunity to help remedy our
growing pension problem in California, as well as a huge cost
saver for the state."
Opponents state, "AB 1812 is strongly problematic for members of
law enforcement who have dedicated their lives to protecting
California's local communities. Furthermore, we believe this is
an issue best worked out at the bargaining table. While this
measure does not include current officers, this could be a
barrier to employment for those looking for a career in law
enforcement."
Opponents conclude, "In light of the Public Employee Pension
Reform Act that was enacted in 2013, AB 1812 is tone deaf,
duplicative, and does not truly address the problem of the
unfunded liability. By capping retirement benefits paid to
public employees at $100,000 and $80,000 this bill would appear
to be more of an attack on the professional class of public
employees, rather than an attempt to mitigate future financial
troubles, while directly negatively impacts recruitment and
retention of state employees."
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This bill is similar to AB 1633 (Wagner) of 2012 which would
have capped the retirement benefit paid to new members of any
public retirement system to members of any public retirement
system first hired on or after January 1, 2013 at $100,000 for
members whose service is not included in Social Security and
$80,000 for new members whose service is included in Social
Security. AB 1633, along with 10 other Assembly bills, was
moved to interim study by this Committee because the Conference
Committee on Public Employee Benefits had been established and
was considering the subject matter contained in the bill as part
of its deliberations. The final report of the Conference
Committee was enacted through AB 340 (Furutani), Chapter 296,
Statutes of 2012, which established PEPRA.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
American Federation of State, County and Municipal Employees
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Association for Los Angeles Deputy Sheriffs
Association of Orange County Deputy Sheriffs
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Correctional Peace Officers Association
California Federation of Teachers
California Judges Association
California Professional Firefighters
California Statewide Law Enforcement Association
California Teamsters Public Affairs Council
Engineers & Scientists of California, IFPTE Local 20
Fraternal Order of Police
LIUNA Locals 777 & 792
Long Beach Police Officers Association
Los Angeles County Professional Peace Officers Association
Orange County Employees Association
Organization of SMUD Employees
Peace Officers Research Association of California
Professional & Technical Engineers, IFPTE Local 21
Sacramento County Deputy Sheriffs' Association
San Diego County Court Employees Association
San Luis Obispo County Employees Associaton
Union of American Physicians and Dentists
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957
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